Yaffe and Bullock on the ‘Contradictory’ Role of the State

by Jehu

Yaffe and Bullock’s paper sought to explain why 1970s stagflation could only be explained by the conditions of capitalist production:

“The crisis has to be located at the level of capitalist production. To show how the central tendency of the rate of profit to fall can express itself as inflation and eventually stagflation (stagnation and inflation), we need to examine how the capitalist experiences this tendency and attempts to maintain profitability by increasing prices. We then have to consider how these prices set by the individual capitalist can be realised – that is how commodities can be sold – exchanged for money – at these prices.”

2qixqxfHowever, in an attempt to refute the theory that inflation was caused by rising wages, they ignored the implications of their argument for the general state of the capitalist mode of production itself. When Yaffe and Bullock wrote the paper, they wanted to show how inflation was caused by the mode of production and attempts to maintain profitability in the face of chronic overproduction. Unfortunately their aim in the paper never actually directly addressed the implications of stagflation for the mode of production itself.

There is a critical point in their argument where Yaffe and Bullock miss this latter implication: their discussion of state policy. At the opening of part III of their 1975 paper, the writers explain:

“As the crisis of overproduction of capital deepens, capital cannot be reproduced since commodities cannot be sold at their prices of production, capacity is underutilised and workers are unemployed. An overproduction of capital then leads to capital values being written off – depreciation of capital – and social labour is ‘devalued’ as the ranks of the reserve army are swelled and wages are driven below the value of labour power. The capital accumulation process comes to a halt and the crisis turns into a political crisis raising questions about the nature of the system of production itself. The survival of the capitalist system becomes a political struggle between the ruling class and the working class, as the ruling class attempts to restructure capital towards greater profitability.”

In contrast to Holloway and Picciotto in their mid-1980s paper, in their own 1975 paper Yaffe and Bullock made the prediction that a crisis produced by the falling rate of profit would lead to a political struggle between the ruling class and the working class — a political crisis — as the ruling class attempted to restore the rate of profit. In this political contest the state played a contradictory role: on the one hand, furthering the restructuring of the mode of production; while, on the other hand, maintaining full employment. The argument appears to be standard Third International Marxism boilerplate regarding the relation between economic crises and political relations in a capitalist society, but it was so much more than this: It was dead wrong.

Contrary to Yaffe and Bullock’s prediction, the crisis of the 1970s did not lead to a political struggle between the two classes over which policies the state would finally embrace, but to sweeping Thatcher-Reagan neoliberal reforms.


How could Yaffe and Bullock turn out to be so wrong about what the the future held for the working class? The answer to this might be found in not in the political relation of the time, but with the Great Depression, when we get a change in the operation of the mode of production itself. According to Yaffe and Bullock, in the interwar years, capitalism begins to experience “near continuous crisis conditions”. Resolving what had become a continuous overproduction of capital required state intervention to achieve continuous inflation of prices.

Yaffe and Bullock argue these sorts of Keynesian-style state economic policies were only systematically adopted after World War II, but, in fact, the writers are wrong: The first state to implement Keynesian-style employment policies vigorously and effectively was Nazi Germany, which achieved “full employment” in 1936. For some reason, Yaffe and Bullock completely ignored the success enjoyed by the Nazi regime — but, okay, this is not the most important issue.

More important is the fact that, according to the authors, Keynes thought it unlikely that private enterprise, on its own initiative could escape chronic overproduction of capital. Keynes argued that offsetting chronic overproduction required constant prices increase and that this inflation of prices could only be achieved by constant expansion of credit:

“‘We are left with the broad conclusion that there is no effective means of raising world prices except by increasing loan-expenditure throughout the world. It was, indeed, the collapse of expenditure financed out of loans advanced by the United States, which was the chief agency in starting the slump.”

According to Yaffe and Bullock:

“Keynes thought it unlikely that private enterprise, on its own initiative, would undertake new loan expenditure on a sufficient scale to achieve the required result. It was, he argued, necessary for the public authority to take the first step.”

Now just think about what this statement means through the lens of labor theory: the motive for production under the capitalist mode of production is the production of surplus value, production for profit. If the capitalists could not escape chronic overproduction of capital, essentially the rate of profit had finally and permanently fallen to zero. This is not my argument — mind you — just the implication of Yaffe and Bullock’s own argument. If the writers are to be believed, the capitalist mode of production effectively ceased to exist during the Great Depression.

And what was the symptom of this collapse? According to Yaffe and Bullock, “commodities cannot be sold at their prices of production”.  To understand what this means recall labor theory states the price of production of a capitalistically produced commodity is equal to the value of the constant capital consumed in its production, (c), plus the variable capital, (v), plus an average rate of profit, (s): Which is to say, the price of a capitalistically produced commodity is c+v+s.

Essentially, Yaffe and Bullock argued that since the Great Depression the total value of s — the profit that could be realized on production of commodities —  was now set permanently at zero.

This did not mean production of material wealth was impossible. To the contrary, commodities could still be produced, but the prices at which these commodities could be sold were less than their capitalist prices of production. To get these capitalistically produced goods to sell at their prices of production required, “a policy of ‘price rises'”, i.e.,  continuous inflation — or, what is the same thing, it required money to be exchanged with commodities below its value. But what happens when money is exchange for commodities below its value? Money falls out of circulation and gathers into hoards of gold or other precious metals, IOUs are devalued and credit evaporates — this is all examined in outline by Marx in Chapter 15 of Volume 3.

So far as I can tell, Yaffe and Bullock seemed to be accurately describing a crisis of overproduction, but here is the thing: Yaffe and Bullock showed the crisis of overproduction never went away. So, if overproduction of capital never went away, conditions for “the ‘sound’ operation of capitalist production” were never restored — i.e., prices of production never recovered to reflect their capitalistic values.

And that means as of 1975 when Yaffe and Bullock wrote their paper, capitalism was effectively dead as a door nail.

If, as Yaffe and Bullock’s argument suggests, capitalism has been dead for more than 70 years, why are we still doing wage labor? Well, here is the thing: Yaffe and Bullock were not only wrong about when Keynesian policies began to be implemented, they also missed the most important of all Keynesian policies: the move by Europe and the US to inconvertible fiat currency domestically and finally throughout the entire world market in 1971.

Continuous (or absolute) overproduction required inflation, but as we saw, inflation is incompatible with commodity money. To circumvent this problem required the state to detach fiat currency from gold. To put this another way: Keynes explained in his 1933 book that production of surplus value was now incompatible with production on the basis of exchange value. The capitalist mode of production could continue only so long as exchange value no longer reigned in the sphere of circulation. Thus, since the Great Depression wage labor has only continued to exist because labor power is constantly being sold below its value.

The collapse of production based on exchange value was fully predicted by Marx in the Grundrisse, where he wrote:

“The theft of alien labour time, on which the present wealth is based, appears a miserable foundation in face of this new one, created by large-scale industry itself. As soon as labour in the direct form has ceased to be the great well-spring of wealth, labour time ceases and must cease to be its measure, and hence exchange value [must cease to be the measure] of use value. The surplus labour of the mass has ceased to be the condition for the development of general wealth, just as the non-labour of the few, for the development of the general powers of the human head. With that, production based on exchange value breaks down, and the direct, material production process is stripped of the form of penury and antithesis.”

Moreover, in 1929, employing Marx’s own writings, Henryk Grossman explained in detail why labor power would eventually have to be sold below its value if the production of surplus value were to continue:

“There is a growing shortage of surplus value and, under the given conditions, a continuous overaccumulation. the only alternative is to violate the conditions postulated. Wages have to be cut in order to push the rate of surplus value even higher. This cut in wages would not be a purely temporary phenomenon that vanishes once equilibrium is re-established; it will have to be continuous. After year 36 either wages have to be cut continually and periodically or a reserve army must come into being.”

Marx’s prediction is, without a doubt, one of the most well-established and demonstrated facts in all of labor theory.  Yet nowhere in Yaffe and Bullock’s presentation (and, to this, we can add, almost all Marxist writings on the subject) is there even a hint that production on the basis of exchange value has completely broken down. Nor did they explain the production of surplus value now only operated by forcing the class to accept wages below the value of their labor power.

In fact sprinkled throughout Yaffe and Bullocks 1975 paper, we find the exact opposite assertion, like this nonsense:

“Profits cannot be increased by simply reducing wages.”

Or this fucking gem:

“The state then steps in to maintain employment at ‘reasonable’ levels. In such a way its actions prevent wages being pushed below the value of labour power due to the pressure of the reserve army of the unemployed.”

Or this one:

“[The] State limits the growth of the reserve army of labour and in so doing  prevents capital from forcing down wages below the value of labour power.”

In short, even when their own argument leads to the exact opposite conclusion, Marxists continue to insist the state functions and can function as something other than the unchecked dictatorship of capital over the working class — that it’s policies can be influenced by class struggle and, therefore, that it can — even if only within some limited sense — reflect the interests of the working class.